What is Economics?
The word economy comes from the Greek word oikonomos, which means “one who manages a household.” At first, this origin might seem peculiar. But, in fact, households and economies have much in common.
A household faces many decisions. It must decide which members of the household do which tasks and what each member gets in return. Who cooks dinner? Who does the laundry? Who gets the extra slice of cake at tea time? Who chooses what TV programme to watch? In short, the household must allocate its scarce resources among its various members, taking into account each member’s abilities, efforts, and desires.
Like a household, a society faces many decisions. A society must decide what jobs will be done and who will do them. It needs some people to grow food, others to make clothing, and still others to design computer software. Once society has allocated people (as well as land, buildings, and machines) to various jobs, it must also allocate the output of goods and services that they produce. It must decide who will eat caviar and who will eat potatoes. It must decide who will drive a Mercedes and who will take the bus.
The Economic Problem
These decisions can be summarized as representing the economic problem. There are three questions that any society has to face:
- What goods and services should be produced?
- How should these goods and services be produced?
- Who should get the goods and services that have been produced?
The answer to these questions would be simple if resources were so plentiful that society could produce everything any of its citizens could ever want, but this is not the case. Society will never have enough resources.
